TORONTO, June 12 (Reuters) - Canadian lender National

Bank's expansion from east to west, rather than

following Canada's big banks south of the border, could help

secure growth, analysts and investors said.

The Quebec-based bank's C$5 billion ($3.65 billion) deal to

buy Alberta's Canadian Western Bank ( CWESF ), announced on

Tuesday, surprised Canada's highly concentrated sector where

consolidation has included No.1 lender Royal Bank of Canada's ( RY )

C$13.5 billion purchase of HSBC's ( HSBC ) domestic operations.

Veritas analyst Nigel D'Souza said the Canadian Western deal

was "a clear winner" for National Bank, which had C$423.6

billion in assets at the end of fiscal 2023. D'Souza praised the

expansion and diversification of the bank's Canadian franchise

which he said had the highest risk-adjusted returns over the

long term.

D'Souza said international banking, a segment that many big

Canadian banks have increasingly pursued, has the lowest

risk-adjusted returns.

"When you look at the banks that are underperforming,

they're typically the banks that are focused on growing

international banking franchises," he said. National Bank has

the smallest exposure to international banking among peers, with

Cambodia its only significant foreign operation through its

acquisition of ABA Bank in 2019.

National Bank's stock has gained 16% so far this year,

making it the top gainer among the big six banking stocks in

Canada.

The latest deal gives National Bank access to CWB's C$37

billion loan book, which includes equipment financing,

commercial loans, mortgages, real estate and oil and gas loans.

National Bank could introduce CWB's equipment financing

business and its focus on wealth management in Alberta to Quebec

in the east, said analyst Maxime Robillard at Quebec-based Van

Berkom Global Asset Management, a CWB shareholder.

National Bank has increasingly focused on its capital

markets business, which accounts for a third of its income, and

at the same time has grown its wealth management business.

"We used to describe this bank as a regional bank... and now

with Canadian Western Bank ( CWESF ), you could credibly say this bank

actually lives up to its name. It is a national bank now," said

Brian Madden​​​​, chief investment officer at First Avenue

Investment Counsel.

ELECTION YEAR

The deal is expected to close by the end of 2025 and is

subject to approval by two-thirds of CWB's shareholders and

regulators.

Robillard said he would vote for the deal, but he worried

that the timeline, which could coincide with a Canadian election

due by Oct. 20, 2025, could inject some uncertainty.

Some deals have taken months or over a year to get approvals

from the federal banking regulator, the competition bureau and

ultimately the department of finance.

"There could be western-based institutions/politicians in

the middle of an election that may not be overly positive on

their 'domestic bank' being acquired," Raymond James analyst

Stephen Boland said.

MORE CONSOLIDATION?

On Wednesday, shares of Laurentian Bank, which

failed to find a suitor when it conducted a strategic review

last year, and EQB Inc ( EQGPF ), which operates Equitable Bank,

surged, hinting at potential investor interest in more

consolidation.

Investors and analysts believe that more consolidation is on

the way in Canada, either mergers and acquisitions among

Canadian banks or foreign firms exiting Canadian operations.

Analysts noted that the big six banks have structural

advantages that the smaller banks will not be able to overcome

that could eventually drive further consolidation.

"We believe the latest competitive actions could spur or

force Laurentian to revisit and re-evaluate its strategic plan,"

Jefferies analyst John Aiken said.